Analysts at Peel Hunt have speculated that the reinsurance industry may step back and lower its exposure to secondary perils next year, leaving primary insurers to take on more of the risks.
As the renewal season progresses, Peel Hunt notes that reinsurers will currently be reassessing their property catastrophe risk appetite for 2022.
A few in the industry have already indicated that they are planning to reduce their property catastrophe exposures at the January 2022 renewals even if rates continue to harden.
And others are taking a wait-and-see stance after having already grown their property catastrophe books in 2021, analysts observed.
According to Peel Hunt, the return outlook for 2022 will in large part be driven by the improvement in underlying margins following three years of healthy rate rises across specialty insurance classes.
“The question is how much volatility around this are reinsurers willing to accept in 2022 following five years of elevated natural catastrophe activity and modest returns on capital,” Peel Hunt stated.
And with questions arising around the rate adequacy of property catastrophe risks in general and the impact of climate change on secondary perils in particular, this could cause reinsurers to reduce their overall appetite for secondary perils.
The past five years has seen a heightened pattern of insured natural catastrophe losses from secondary perils such as freak weather events, floods and wildfires.
With the exception of 2017, secondary perils have contributed the majority of insured losses, or around 65% in the past three years alone.
